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GENDYN/DISC ceased performing as GENDYN’s commission agent
on December 31, 1984, and was dissolved on October 23, 1992.
On December 27, 1984, GENDYN incorporated petitioner General
Dynamics Foreign Sales Corp. (GENDYN/FSC) in the U.S. Virgin
Islands to serve as GENDYN’s export sales representative. GENDYN
owned the sole class of voting stock and entered into a Foreign
Sales Commission Agreement with GENDYN/FSC. On March 22, 1985,
GENDYN/FSC elected under section 927(f) to be treated as a
foreign sales corporation (FSC). During 1985 and 1986,
GENDYN/FSC functioned as GENDYN’s export sales representative and
was involved in no other trade or business. GENDYN/FSC filed
Federal Forms 1120-FSC and used the completed contract method of
accounting to report the commissions earned on GENDYN’s sales of
export property involving long-term contracts.
At the end of each year, commissions on export property
sales involving long-term contracts were deducted by GENDYN and
included in income by GENDYN/FSC in its appropriate taxable
period. With rare exceptions, the 23-percent combined taxable
income method (23-percent method) was used because it produced
the largest commission. In a few instances, the 1.83-percent
gross receipts method was used.
Petitioners computed combined taxable income for each long-
term contract under the 23-percent method as follows:
(a) Add: gross receipts from the contract as determined
under the completed contract method of accounting;
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Last modified: May 25, 2011